President Barack Obama must be thinking of a Plan B if he is unable to negotiate a deal with Republicans over the federal government shutdown. Photo: Barack Obama/Facebook.

Assuming no breakthrough in Congress, Barack Obama must choose what matters most

In the Oval Office President Barack Obama is trying to figure out what to do if Congress can’t pass a budget resolution or won’t raise the debt ceiling.

The House rose for the weekend, and won’t sit until Monday night, after the American Columbus Day holiday. The Senate’s leaders stayed in Washington to talk.

John Boehner, Republican Speaker of the House, is leading the political charge against President Barack Obama and the government shutdown. Photo: John Boehner/Facebook.

By Thursday, the alternatives will have to kick into place.

This is what happens when you keep kicking the can down the road for years, and discover suddenly that the road just ran out.

The issue isn’t any longer about whether the Affordable Care Act (aka Obamacare) should be going ahead. Nor is it about who really won the 2012 election.

Now the issue is about what kind of country Americans live in.

Amongst those holding up the works, you have people who believe that kicking the can of ever-increasing debt down the road again and again is wrong, that you should “take what you want, but pay for it” (as the old Spanish proverb goes).

Against them are people who firmly believe that the rest of the world will continue to pay, ad infinitum, for America’s programs so that they don’t have to.

Amongst those standing in the way of just passing a budget, raising the debt ceiling, and carrying on, are those who think taxes are high enough, thank you, and that cuts to spending are in order — and those who think there’s lots of room to increase taxes to pay for today’s program spending and tomorrow’s new goodies.

This doesn’t line up as “Republican vs Democrat”, actually, although since Congress, starting in the 1990s, became so outright Parliamentary in its party discipline it often looks that way.

Nor is this — as some would have it — a faction (the Tea Party) holding the whole country up to ransom, although many of the speakers for “enough debt” and “no more programs” do owe their presence in the House or Senate to Tea Party supporters.

Here’s reality for Barack Obama, he of the “I won’t negotiate” stance. Come Thursday, the “money from foreigners” game is over. All the accounting tricks and “pass the asset” games to stay under the current debt ceiling will have been played.

Americans already have a 2 per cent GDP drop working its way through the system thanks to the laid off government employees whose work isn’t funded without a budget resolution. The inability to borrow a trillion or so new dollars a year to pay for everything means another 7-10 per cent drop in GDP stares them in the face.

Under current laws, Social Security, Medicare, etc. payments can simply be pro rated to reduce to the funds available. That’s one choice, worth another 3-4 per cent of GDP by the time it’s fully implemented.

Alternatively, money can be taken from other commitments. Overseas bases could be closed, troops returned to home ports, ships mothballed, intelligence gathering highly restricted, and Homeland Security cranked way back.

Some blend is probably how things would have to be.

This weekend saw a systems failure in the electronic debt cards used for food stamps (which feed 50 million Americans) in 17 states. People couldn’t buy food beyond $50 (the manual process). Slashing Social Security or the military would add to the burden on that system — and let’s not forget that hungry people do tend to riot (remember the Arab Spring?).

Meanwhile thereare at least nine other cities one push from following Detroit over the brink into bankruptcy and shutdown — and two very shaky states. In other words, as fast as the books get rebalanced at the new limits, new pressures will emerge.

America takes in more than enough in taxes each year to pay its interest charges and create a buffer to roll over maturing debt. Default remains a choice (that’s the other option that President Barack Obama can select) rather than something imposed.

But it can’t maintain today’s spending levels without a higher debt ceiling, and it can’t maintain today’s economy without a budget resolution that gives Barack Obama everything he wants.

Plan, therefore, for a nasty, and long, US-led global recession. It’s already under way — we just haven’t noticed it at our tables, yet.

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Comments (1)

The author clearly does not understand what the debt ceiling is about.
The debt ceiling has noting to do with raising more money for more spending. It isn’t about deficit spending. It isn’t about authorization to borrow more money.

Think of it this way:

You go into a restaurant with your family. The waiter hands you a menu. Everyone in the family orders. You look at your wallet and decide you can pay for some of it in cash and put some of it on a credit card. You order your food. The waiter brings you the food. You eat it.

Then when the waiter brings you the bill (debt ceiling) YOU REFUSE TO PAY IT BECAUSE YOU DON’T WANT ADD ANYTHING MORE TO YOUR CREDIT CARD.